Bounce-back in FICC puts bank strategies in focus

An improvement in banks' fixed income, commodities and currencies businesses has recruiters expecting a series of hires

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By

Tim Burke

Updated: January 3, 2017 11:25 a.m. GMT

After years in the doldrums, the fixed income, commodities and currencies business turned a corner in 2016. Banks that had rethought their FICC strategies during the tough years must now decide whether they need to think again.

Joseph Leung thinks they will. The managing partner at recruitment firm Aubreck Leung believes that banks that scaled back their FICC sales and trading businesses while industry revenues fell went too far. He thinks they will now need to bulk out their senior benches as the business bounces back.

Leung said: “While there certainly was a big trend to ‘juniorise’ teams for the last few years, there were basically mixed results. Given this and the relative positive news from Q3 and Q4 in certain areas like rates and credit, we’re seeing an interest to reinvest and have another look at what the optimal set-up might be. Teams will likely be rebalanced with a focus on selective upgrades.”

FICC revenues across the biggest global investment banks, as tracked by research firm Coalition, fell from $109.1 billion in 2010 to $69.9 billion in 2015. Several overhauled their businesses in response to a struggling market. Coalition recorded a drop of a third in FICC headcount across the top banks between 2010 and 2015, a far sharper fall than in equities or investment banking divisions. Morgan Stanley, for example, announced plans in late 2015 to slash some 470 fixed income sales and trading jobs.

But the market began to turn during the second quarter of 2016, and by the end of September industry revenues from the business had nudged up 2% year-on-year as volatility around events such as the UK’s Brexit vote led to a rise in trading volumes.

Coalition’s analysts reckon full-year industry FICC revenues will be 5% ahead of the 2015 total, at about $73.4 billion. At a recent banking conference, JP Morgan chief executive Jamie Dimon and Bank of America boss Brian Moynihan said they expected their firms to post rising FICC revenues in the final quarter of the year.

Analysts at Barclays said in a November note that European firms including Credit Suisse, Deutsche Bank and BNP Paribas could benefit from market volatility around the election of Donald Trump. Some banks are investing in the business. During the second half of 2016 Barclays brought in several experienced salespeople and traders to its emerging markets teams, including Paulo Agostini, who spent the past 16 years with Deutsche Bank, as London-based head of EM rates trading for Emea.

Others remain cautious. On Morgan Stanley’s third-quarter earnings call, chairman and chief executive James Gorman said its fixed-income business still “needs to evidence consistency” despite revenues doubling year-on-year during the three months to September 30.

George Kuznetsov, Coalition’s head of research, said it was unlikely banks would make any radical changes to their strategies until their FICC businesses show a more sustained upturn.